Understanding the customer base of service providers: An examination of the Differences Between Switchers and Stayers

- 1 - Laurence J. Pino
Jaishankar Ganesh, Mark J. Arnold & Kristy E. Reynolds
2000
Understanding the Customer Base of Service Providers:
An Examination of the Differences Between Switchers
and Stayers
- 1 - Laurence (Larry) J. Pino, (Esq.)

The Authors
Jaishankar Ganesh
Dean & Professor of Marketing
Rutgers University
School of Business - Camden
PhD, Marketing & International Business
University of Houston
Mark J. Arnold
Department of Marketing Chair
Saint Louis University
John Cook School of Business
PhD, Business Administration
Saint Louis University
Kristy E. Reynolds
Marketing Department Head and
Bruno Professor of Marketing
Culverhouse College of Commerce
PhD
University of Alabama

Purpose of the Study
Empirical data indicate that U.S. corporations lose half of their customers
in five years and those rates of loss stunt corporate performance by 25 to 50
percent (Reichheld and Teal, 1996). On the other hand, maintaining relationships
between the company and customers generates superior corporate
performance since, with consumer longevity, customers are less costly to serve
because of learning effects and decreased servicing costs and are shown to buy
more, pay premium prices and provide new word-of-mouth referrals (Keaveney,
1995; O’Brien and Jones 1995; Reichheld and Kenny, 1990). It is because of that data that
companies continue to implement retention and loyalty programs for the
purpose of maintaining their customer base. At the same time, of late,
researchers have identified that not all customers are created equally (Blattberg
and Deighton, 1996; Reichheld 1993), although very little research is extant exploring
the behavioral and attitudinal differences among various customer groups.

Purpose of the Study
It is that gap in the literature which provides the canvas for the author’s
current Study of the retail banking industry, which focuses through two
different Studies on two groups of customers – those who have switched from
other service providers (“switchers”) and those who are first-time adopters
(“stayers”), subdividing the switchers into two subgroups, those who switched
because of dissatisfaction with the prior company and those who switched but
were otherwise satisfied. Further, the Studies focus not on the firm from which
the switchers came, but the firm to which the customers went. The major
objectives of this Study #1, therefore, were to:
1. examine whether the three groups of customers differ in their overall
satisfaction with the service provided by the current firm;
2. investigate the role of satisfaction with the various aspects of the service
in differentiating among the groups; and,
3. examine whether the groups differ in their involvement with and loyalty
behavior toward the service.

Expectancy-Disconfirmation Theory
(Oliver, 1980)
Customers judge satisfaction with a product by comparing previously held expectations with
perceived product performance. If performance is above (below) expectations, positive
(negative) disconfirmation occurs and increases (decreases) in satisfaction are expected. In short,
customer satisfaction is a function of expectations and disconfirmation. Two underlying forces
change the process: assimilation and contrast effects.
Research Landscape of the Study
Assimilation Contrast Effects
Assimilation theory, similar to adaptation-level
theory (Helson, 1964), suggests that customers
rely heavily on their expectations in assimilating
performance – anchoring their valuations –
based on their prior performance expectations.
The incidence of assimilation, or adaptation,
takes on increased importance under
conditions of high-performance ambiguity.
Alternatively, customers are seen to magnify
perceptions of performance in the direction of
the performance discrepancy in relationship to
perceived expectations, particularly under
conditions of high salience, or involvement,
and particularly when customers can easily
discern performance differences.
Customer Satisfaction

Comparison Level Theory
(Thibaut and Kelley, 1959)
Comparison-level theory addresses the question of whether dissatisfied switchers are likely to experience positive
disconfirmation or negative disconfirmation once the switch has occurred, which is addressed by comparison-level
theory, whereby the switching customer is using the relationship of the customer with the prior service provider
with the experience the customer has with its new service provider. In a sense, the dissatisfied switcher has
precipitated a comparison between the rejected prior service provider and the new service provider reflecting a
higher level of satisfaction relative to other customers who did not experience that disconfirmation, such as satisfied
switchers and stayers. When viewed from the standpoint of comparison-level theory, there is a difference between
and among the three groups. The first group, as noted above, can be predicted to have a greater level of satisfaction
based on the reset triggered by adoption of the new service provider after the rejection of the prior service provider.
Common to a dissatisfied switcher and a satisfied switcher, both customers experience the new service provider
based on experience-based norms.
Stayers Satisfied Switchers
Stayers lack the experienced-based norms that switchers
– dissatisfied or satisfied – share. The nature and
amount of a customer's experience with an evoked set
of brands are important determinants of the satisfaction
process (Cadotte, Woodruff and Jenkins, 1987;
Woodruff, Cadotte and Jenkins, 1983). When
experiencing prior expectations with experienced-based
norms, customers’ expectations tend to divide into a
“better than/worst than” field of comparison (Oliver,
1997).
While the dissatisfied customer has used the prior
experience as a catalyst for switching, the satisfied
switcher, who is switching not because of dissatisfaction,
but for any number of other reasons, is using the
experience with the prior service provider as a
comparative baseline for future expected performance
(Zeithaml, Berry, and Parasuraman, 1993 and Boulding,
1993), including the upward shift of greater expectations
over time.

H1: All else being equal, compared with satisfied switchers and stayers, dissatisfied switchers
are more satisfied with their current service providers.
H2: Compared with stayers, satisfied switchers are less satisfied with their current service
providers.

Satisfaction with specific service attributes should be measured routinely
when customer satisfaction and switching behavior are investigated.
Some dimensions of service may be perceived as more important than
others in determining overall satisfaction and intentions to repatronize or
switch, but identifying and tracking the service dimensions can provide
actionable information for managerial guidance (Rust and Zahorik, 1993).
In In determining perceptions of service quality and satisfaction, there
appear to be five dimensions of service: tangibility, reliability,
responsiveness, assurance, and empathy (Parasuraman, Zeithaml, and Berry,
1985, 1988, 1994); also, convenience and warmth (Rust and Zahorik, 1993).
Service encounters can be best viewed as a social encounter and fall under
the general category of the broader “people factor” (Berry, 1983; Czepiel,
1990). Purchasing encounters are interpersonal in nature and fall within
the “people factor” (Crosby, Evans, and Cowles, 1990; Crosby and Stephens, 1987;
Iacobucci and Ostrom, 1996; Ostrom and Iacobucci, 1995).
Service Dimensions

Customer perceptions of contact employees will affect their perceptions of
the company and influence customer satisfaction (Bitner, Booms, and Mohr, 1994;
Goff et al., 1997; Iacobucci and Ostrom 1996; Rust and Zahorik, 1993; Westbrook 1981).
Interpersonal contact in behaviors associated with failure and recovery
(customer service) affects ultimate satisfaction and perceptions of the quality of
a company (Kelley, Hoffman, and Davis, 1993).
H3: Satisfaction with the people factor of the service is a stronger discriminant of the three
groups of customers than satisfaction with the other aspects of the service.
A purchase involvement is a more narrowly focused situational
involvement (Houston and Rothschild, 1978) relating to the outcome of a person’s
interaction with a product and the purchase situation (Beatty, Kahle, and Homer,
1988). It can be best understood as the cost, effort or investment in a purchase
(Mittal and Lee, 1989; Zaichkowsky, 1985). Different types of customers experience
different forms of purchase involvement (Beatty, Kahle, and Homer, 1988).

Dissatisfied switchers, for example, are expected to have experienced
critical changes in levels of perceived service quality (Keaveney, 1995). Negative
outcomes are likely to be distinctive, atypical, emotionally charged, and bound
to be encoded more thoroughly and retrieved more easily from memory (Folkes,
1988). Such prior experiences will be incorporated into expectations and
apprehensions about future service experiences (Oliver and Winter, 1987), which
will affect perceived risks associated with service selection and use (Mittel and
Lee, 1989). In short, for dissatisfied switchers, these cognitive evaluations will
increase purchase involvement (Bloch 1982; Bloch and Richins, 1983; Houston and
Rothschild 1978).
H4: Compared with satisfied switchers, dissatisfied switchers exhibit high levels of purchase
involvement.
Ego Involvement has been defined as “the importance of the product to
the individual and to the individual’s self concept, values, and ego” (Beaty, Kahle,
Homer, 1988). It is a type of “enduring involvement” which is defined as an
ongoing concern for a particular product class and relatively independent of a
particular purchase situation (Bloch and Richins 1983; Richins and Bloch 1986).

And, while stable (Richins and Bloch 1986), several psychological mechanisms
influence ego involvement, such as familiarity (Sherif and Cantril, 1947).
H5: Compared with stayers, both dissatisfied and satisfied switchers exhibit lower levels of ego
involvement.
Ego involvement will be affected by decisions made by a customer to
either switch or stay with a service category or service provider (Sherif and Cantril,
1947). Similarly, a negative consumption experience will influence the extent
that a consumer finds important the relationship between the product or
service category and the consumer (Bloch and Richins 1983). Psychological coping
mechanisms devalue or decrease the importance of an object causing
psychological stress (Pearlin and Schooler, 1978), such as an unsatisfactory
experience with a service provider or category.
H6: Compared with satisfied switchers, dissatisfied switchers exhibit lower levels of ego
involvement.

Customer Loyalty
Customer loyalty can be conceptualized as a combination of commitment
to the relationship and other overt loyalty behaviors, consistent with prior
research (Day, 1969; Dick and Basu, 1994). The authors apply comparison-level
theory (Thibaut and Kelley, 1959) to identifying how the three groups apply
customer loyalty. Comparison-level theory can be identified as the “lowest
level of outcomes a person will accept in light of available alternative
opportunities” (1959, p. 21).
• When current outcomes drop below comparison level outcomes for
alternatives, the consumer will be motivated to leave the relationship.
• If the perceived outcome for the alternatives are distant from actual
outcomes, the consumer will be motivated to remain in the relationship.
• A consumer will apply an outcome continuum to evaluate the relative
positions of current comparison level, alternative comparison level, and
actual outcomes, the ordering of which will determine the level of
customer loyalty (Thibaut and Kelley, 1959; Day, 1969; Dick and Basu, 1994).

• Customers with poor prior experience exhibit higher satisfaction and
repeat purchase intentions with a new brand (LaTour and Peat, 1980;
Mazursky, LaBarbera, and Aiello, 1987). Satisfied switchers and stayers
experience relatively small shifts in their comparison level and
comparison level for alternatives largely because perceived actual
outcomes with their current service provider change little and their
consideration set for available alternatives remains relatively unchanged.
H7: Compared with satisfied switchers and stayers, dissatisfied switchers are more loyal to their
current service.
• Psychological constructs such as negative attitudes and feelings toward
their previous service provider as well as current expectations, emotions,
and behavior toward the current service provider are antecedents to
customer loyalty (Dick and Basu, 1994).
• Higher perceived switching costs are believed to result in higher loyal
attitudes and intentions although switching costs will be less relevant to
satisfied switchers who have already experienced switching.
Customer Loyalty

• Customers who switch for reasons unconnected to dissatisfaction are
more likely to exhibit lower satisfaction and repeat purchase intentions
with a switch of brand than customers who are intrinsically motivated by
dissatisfaction, for example (LaBarbera and Mazursky 1983; Mazursky, LaBarbera,
and Aiello 1987).
H8: Compared with stayers, satisfied switchers are less loyal to their current service providers.
Customer Loyalty

Conceptual Framework of the Study

Data and Methodology
Instruments and Measures
Step 1: The authors designed an instrument to collect information on: (1)
customers’ use of banking services; (2) overall satisfaction with the current
primary bank; (3) satisfaction with the individual aspects of the banking
service; (4) purchase and ego involvement associated with the choice and
usage of the bank; (5) customers’ sense of loyalty toward the bank; and, (6)
demographic characteristics. The instrument was pretested on a small sample
which resulted in a reduction of length of the instrument and a refinement of
the script used by the trained interviewers.
Step 2: Trained interviewers then conducted interviews on a randomly-
selected database pulled from a local telephone directory of a major
metropolitan area in the southeast region of the United States resulting in 200
usable responses out of a total of 828 calls.
Step 3: On the basis of questions associated with the customers’ behavior in
either staying with an existing bank or switching, along with the reason,
customers were separated into three categories: stayers, dissatisfied
switchers, and satisfied switchers.

Data and Methodology
Step 4: Measures of consumer satisfaction were pulled from the literature and
measured on a five-point Likert scale.
Step 5: Measures of involvement were pulled from the literature and resulted with
nine items focused specifically on purchase and ego involvement.
Step 6: Measures of brand loyalty were pulled from more recent studies
expanding the concept of repeat patronage or repeat purchase intentions to more
nuanced items such as repeat patronage, price insensitivity, resistant to counter
persuasion, and so forth, and tested on a five-point Likert scale.
Data Analysis
Of the 200 respondents: 27% were stayers, 15.5% were dissatisfied switchers, and
the remains 57.5% were satisfied switchers. With respect to satisfaction, the data,
once factor analyzed, reflected three factors interpreted as: “people factor,”
location convenience, ease of transaction, and the “cost factor.”
Involvement revealed a two-factor solution identifying purchase involvement and
ego involvement. Loyalty also revealed a two-factor solution which included
“active loyalty” (customer’s willingness to spread positive word of mouth and their
intentions to use more of the bank’s services); and passive loyalty (competitive
price immunity and self-stated retention.)

Hypotheses
Explanation
H1
All else being equal, compared with
satisfied switchers and stayers,
dissatisfied switchers are more
satisfied with their current service
providers. Supported
Reflected in Table 2, the three groups differ
significantly in their overall satisfaction with the
current bank showing that the dissatisfied switchers
are significantly more satisfied with their current
bank than the other two groups and that the
satisfied switchers are significantly less satisfied
than the stayers.
H2
Compared with stayers, satisfied
switchers are less satisfied with their
current service providers. Supported
Reflected in Table 2, the three groups differ
significantly in their overall satisfaction with the
current bank showing that the dissatisfied switchers
are significantly more satisfied with their current
bank than the other two groups and that the
satisfied switchers are significantly less satisfied
than the stayers.
H3
Satisfaction with the people factor of
the service is a stronger discriminant
of the three groups of customers than
satisfaction with the other aspects of
the service. Supported
As reflected in Table 6, the groups means suggest
that as in the case of the overall satisfaction
variable, the mean satisfaction level decreases from
the dissatisfied switchers to stayers to the satisfied
switchers.

Hypotheses
Explanation
H4
Compared with satisfied switcher,
dissatisfied switchers exhibit higher
levels of purchase involvement.
Supported
As indicated in Table 6: (1) the overall discriminant
function is significant, (2) both purchase and ego
involvement factors are significant in discriminating
among the three groups, and (3) the group means
are in the hypothesized directions. Moreover, the
impact of ego involvement on the discriminant
function is stronger than the influence of purchase
involvement.
H5
Compared with stayers, both
dissatisfied and satisfied switchers
exhibit lower levels of ego
involvement. Supported
involvement.

Hypotheses
Explanation
H6
Compared with satisfied switchers,
dissatisfied switchers exhibit lower
levels of ego involvement. Supported
involvement.
H7
Compared with satisfied switchers and
stayers, dissatisfied switchers are more
loyal to their current service. Partially
Supported
Table 6 reveals that both active and passive loyalty
factors are significant in discriminating among the
groups and each has almost equal influence on the
discriminant function. On the other hand, the
means are in the hypothesized direction for active
loyalty, but not for passive loyalty indicating that
dissatisfied switchers are not higher in passive
loyalty than the other groups; in fact, they exhibit
the lowest levels of passive loyalty. It is the stayers
who exhibit the highest level of passive loyalty.

Hypotheses
Explanation
H8
Compared with stayers, satisfied
switchers are less loyal to their current
service providers. Partially Supported
Table 6 reveals that both active and passive loyalty
factors are significant in discriminating among the
groups and each has almost equal influence of the
discriminant function. On the other hand, the
means are in the hypothesized direction for active
loyalty, but not for passive loyalty indicating that
dissatisfied switchers are not higher in passive
loyalty than the other groups; in fact, they exhibit
the lowest levels of passive loyalty. It is the stayers
who exhibit the highest level of passive loyalty.

The authors’ intention in conducting Study #2 was to replicate the findings of
Study #1 and offer some additional insights as to those items which were
missing from Study #1: (1) the relevant timeframe in which these effects are
likely to operate, and (2) the affect of any prior switches on current satisfaction
levels.
With respect to duration of stay, the scant general research would suggest that
as customers continue a relationship with the switched-to firm, customers will
adapt over time to the new service level (Boulding and colleagues, 1993). Similarly,
customers with extensive brand experience are more likely to employ focal
brand expectations than customers with limited brand experience, who in turn
are more likely to employ experienced-based norms (Woodruff, Cadotte, and Jenkins,
1983).
RQ1: Do the differences among the three groups in terms of their overall level of satisfaction
change with increasing tenure with the switched-to bank?
Theoretical Construct for Study #2

Memory recall bias (Folkes, 1994) and heuristic processing (Tversky and Kahneman,
1974) appear to indicate that the most emotionally charged and atypical
experiences will play a large role in establishing future comparison standards.
On the other hand, recency bias would also suggest that people are more likely
to recall more recent events than more distant ones and therefore become the
more salient feature (Crano, 1977; Greene, 1986; Pieters and Bijmolt, 1997).
Study #1 does not address the determination as to whether memory recall bias
and heuristic processing or recency bias become more salient features in
establishing future expectations.
RQ2: Are there differences in the current levels of satisfaction among customers with mixed
switching experiences?

Prior research suggests that other potential relevant variables – the constructs
of dependence, commitment, (Ganesan 1994; Morgan and Hunt, 1994; Bendapudi and
Berry, 1997) and risk aversion (Raju, 1980) – are particularly important influences on
switching behavior. Customers exhibiting high levels of commitment are more
likely to maintain a dedication-based relationship. Customers who are highly
dependent on a relationship are more likely to maintain a constraint-based
relationship and customers who are particularly risk averse are less likely to take
risks or be adventurous.
RQ3: Are there subgroups within the three main customer groups that differ in terms of
commitment, dependence, and risk aversion, and if so, do they exhibit significant differences in
their overall satisfaction, involvement, and loyalty behaviors?

Instruments, Measures and Data
Study #2 included all the measurement instruments containing all of the items
used in Study #1 with new items that measured several other constructs to be
investigated under Study #2. Three additional measures were used to address
RQ3 measuring dependence and commitment (Morgan and Hunt, 1994; Ping, 1993),
and an additional measure using items adapted from a scale used by Raju, 1980 to
assess risk aversion. The total usable surveys, conducted with the same
methodology for Study 1, were 494.
Data and Methodology for Study #2
Explanation
H1 –
H8
Pages 18-21 The replication of Study #1 through an ANOVA to
compare group means for H1/H2 and a factor analysis
as well as multiple discriminant analyses for H3
through H8 combined with a split sample validation
validated the same results as Study #1. Note Tables
8 and 9.

Explanation
RQ1
Do the differences among the three
groups in terms of their overall level
of satisfaction change with increasing
tenure with the switched-to bank?
As reflected in Table 10, for subgroups identified as
one year and less, two to five years, six to 10 years,
and more than 10 years, the results reveal that the
main overall satisfaction score of dissatisfied
switchers is significantly different from that of the
other two groups for the first three times periods
and is not significantly different for the fourth time
period. In addition, the overall satisfaction with the
current bank seems to decline with time for
dissatisfied switchers. The other groups reflected no
discernable pattern.
RQ2
Are there differences in the current
levels of satisfaction among
customers with mixed switching
experiences?
The results from Table 11 show no significant
differences in the mean overall satisfaction scores of
mixed experience customers who are similarly
classified. While the authors are making no claim
based upon the sample size, they note that the
empirical evidence presented suggests that the most
recent switching experience is more likely to
influence the comparison standard used by the
switchers and, therefore, their satisfaction with a
loyalty behavior toward the current service provider.

Explanation
RQ3
Are there subgroups within the three
main customer groups that differ in
terms of commitment, dependence,
and risk aversion, and if so, do they
exhibit significant differences in their
overall satisfaction, involvement, and
loyalty behaviors?
RQ3 was analyzed by bifurcating the high
commitment versus low commitment customers into
three categories reflecting the highest satisfaction
levels for the customers exhibiting high commitment
and mixed results for the other constructs including
purchase involvement, ego involvement, active
loyalty, passive loyalty, high and low dependence,
and risk aversion.

Results
According to the authors, the results of Study #1 and Study #2 reflect the
following:
1. There are priori hypothesized groups in the customer base of a typical
service provider.
2. The three groups identified – dissatisfied switchers, satisfied switcher,
and stayers – differ significantly in terms of their satisfaction with their
current service provider and their orientation toward the new service
provider reflected in purchase and ego involvement and loyalty.
3. The data are replicated in a broader two-geographic region providing
external validation.
4. Overall satisfaction among the three groups with current service
providers decrease with increasing tenure.
5. As to prior switching experiences, the most recent switching experience
is the most salient for producing customer satisfaction with the current
service provider.

Implications & Conclusions
The data, hypotheses, research questions, and analytical results precede
these comments. That said, the following are worth noting as take-a-way
messages for enterprise managers.
1. The conditions within which a customer has been secured are relevant to
an analysis of the current and future behavior of that particular customer.
For example, by identifying in the acquisition of each customer whether
they were dissatisfied with their prior service provider and therefore
switched, were satisfied with their current service provider but were
forced to switch for reasons extraneous to dissatisfaction, or had not
been with a prior service provider and are initial adopters, are all relevant
considerations to an extrapolation of not only how that customer can be
expected to behave, but what type of communications might be
appropriate for each subcategory of customer.

2. From the standpoint of not just data and market analysis, but marketing
communication strategies, an understanding of the psychology of
customer loyalty and switching behaviors provide the opportunity for an
understanding of how best to communicate. For example, understanding
that a dissatisfied switcher maintains an animus potentially more salient
than the other two groups identifies opportunities for reinforcement for
marketing purposes, particularly because the current service provider
maintains a halo effect in relationship to the prior service provider, at
least for a material timeframe. The communication is just as relevant,
although different, for satisfied switchers. And stayers, who have
relatively minimal user experience and are otherwise satisfied with the
brand, can have the opportunity for communications different from, but
nonetheless reinforcing in its impact.
3. Commitment, and therefore increasing commitment among all three
levels, is a key ingredient in increasing overall satisfaction, purchase and
ego involvement, and active and passive loyalty behaviors, among all
three customer groups. It is the commitment level which carries with it
the incremental value of the increased behaviors of each of the three
customer categories.

4. From a human behavior standpoint, and not necessarily limited to the
marketplace, it is interesting to note when decision making catalyzes for a
stayer, who knows little else, or a satisfied switcher, who has both user
experience and a baseline against which to compare, and a dissatisfied
switcher who is “running from” as well as “running to.” That holds true
not only for a customer evaluating a current decision, but a spouse
evaluating his or her current position in the marriage.
5. The aspect of memory versus recency in terms of the saliency of the
experience is a relevant consideration in relationship to customer
relations and management. While recency appears to surface in Study
#2, it is not clear that there is a sufficient robustness, as the authors
readily acknowledge, to support it. In addition, from the standpoint of
human experience, that is not necessarily evident. Film literature is
mindful of the comments of Yul Brynner in the iconic movie, Flight From
Ashiya “These things run deep.”

Final Implications
From a managerial standpoint, in assessing levels of advocacy, high
commitment was more salient than any of the other constructs such as
purchase involvement, ego involvement, active loyalty, and passive loyalty with
no significant differences in high and low dependence the risk aversion,
although the latter two are subject to additional evaluation to the extent that
they are particularly counterintuitive.

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